Tell the taxman? But I’ll lose my benefits!

Losing your Benefits – the big fear

Losing your benefits is a big risk. What happens if you tell the Revenue that you’re going self-employed, and then it doesn’t work out?

As the table below shows, you can work up to 14 hours a week, and keep most of your housing benefit, but you’ll lose JSA.

Thereafter, the more hours you work, the more you lose in benefits.

But with the money coming in from self employment, money that takes the place of your benefits, you should end up better off.

When should I tell the tax man?

In theory you should always tell the tax man when you’re working.

But many people have an understandable fear that the new income will fade away. Once you come off benefits, there are delays in getting back on again.

Being on benefits is reassuring. And coming off them is hard.

Anyone who does a small amount of work while claiming is unlikely to be noticed by the tax man.

However, there comes a point when you’re getting income from self-employment. That is the point at which you should tell the taxman, because not doing so will put you at risk.

Your clients may unwittingly mention your name when they claim back expenses from the taxman. And a neighbour may decide to shop you.

Case study: Mark gives up Benefits

Mark is a 31 year old, who has become self employed, working as a writer. He was getting a sizable Housing Benefit payment because he had a big house, due to his having five children.

“I’d got to the point where I had an accountant. He was going through the numbers and asked me if I had any other income. I let it slip that I was getting benefits. He was shocked. He pointed out that I was getting quite a lot of income from self employment.

I left the meeting realising that the benefits were a source of income that I was used to relying on. Giving them up would be hard. What happened if my business started to fail? In the end I told the benefits people that I was starting up a job. They took me off benefits but gave me a weekly grant for a few months. I never looked back. But giving up was a wrench. It was like a comfort blanket.”

At what point are you better of working?

In the table below you can see what money Joe gets. He is a 33 year old single male who has no children, no savings, pays £450 a month rent, £58 a month Council Tax and his Local Housing Authority offers an £83 rent contribution. If working he earns £7 an hour.

The text in blue shows how much better off Joe would be.

Joe – Unemployed
Housing Benefit                                  £83
Council Tax contribution         £14
JSA                                         £72                              Total: £169

Joe  in Part Time work  – 14 hours per week (0-16 hours bracket)
Housing Benefit                                  £69
Council Tax contribution         £16
JSA                                         £0
Income from work                  £98                              Total: £183
£14 Better off

Joe in Part Time work  – 32 hours per week (30+ hours bracket)
Housing Benefit                                  £5
Council Tax contribution         £0
JSA                                         £0
Working tax Credit                  £10
Income from work                  £224
Total: £239 – tax and CTax = £220 net
£51 Better off

Joe  in Full Time Work – 37.5 hours per week (30+ hours bracket)
Housing Benefit                                  £0
Council Tax contribution         £0
JSA                                         £0
Working tax Credit                  £0
Income from work                  £262.5
Total: £262 – tax and CTax = £218 net
£49 Better off

Joe – self employed– 30 hours per week (based on 8 hour days with travel – £15 an hour base rate)
Housing Benefit                                  £0
Council Tax contribution         £0
JSA                                         £0
Working tax Credit                  £0
Income from work                  £450
Total: £262 – tax and CTax = £360 net
£191* Better off

*You can also take claim back expenses which will increase your weekly take home pay. And you can work more hours. The above is only for 6 hours chargeable work per day over 5 days.

The figures are correct at time of writing, but they will change over time.

Thanks for Gareth Truscott for the analysis

 

 

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